Which of the following accounts is a liability account?
a. Notes Payable b. Accounts Payable c. Wages Payable d. All of these choices are correct.
The correct answer and explanation is:
The correct answer is d. All of these choices are correct.
Explanation:
In accounting, liability accounts are those that represent obligations or debts that a company owes to others. These accounts are usually categorized as either current liabilities or long-term liabilities, depending on when the company is expected to settle the obligations.
- Notes Payable: This is a liability account that represents the amount a company owes on a written promissory note. These notes can be short-term or long-term depending on the maturity date. Short-term notes payable are classified as current liabilities, while long-term notes payable are classified as long-term liabilities.
- Accounts Payable: This is another liability account and represents the amounts a company owes to suppliers or vendors for goods and services received but not yet paid for. Accounts payable are usually considered current liabilities because they are expected to be paid off within a short period, often within 30 to 90 days.
- Wages Payable: This account reflects the amount of wages and salaries owed to employees for work performed but not yet paid. It is typically classified as a current liability because the company generally pays its employees regularly, usually on a weekly or biweekly basis.
All three accounts listed—Notes Payable, Accounts Payable, and Wages Payable—are liabilities because they all involve debts or obligations that the company must fulfill in the future. In financial accounting, liabilities are crucial because they provide insight into the financial obligations that a company must manage and fulfill in order to maintain financial health. Tracking these liabilities allows businesses to plan and ensure they can meet their financial commitments without running into liquidity issues.